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Fin and Corporate Accounting

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Assignment 4.
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1. Evaluate Breezy’s Working Capital Management in 2002 and 2003. Do you consider there to be a deficiency or excess in Breezy’s working capital levels relative to the industry?
2. Calculate Days Inventory, Days Receivable and Days Payable for 2002 and 2003 (using average balance sheet amounts where relevant). What is the funding gap for Breezy in each of these periods? What does this mean in terms of Breezy’s growth strategy?
3. How can Breezy improve its working capital management? Make recommendations in relation to specific short-term assets and liabilities. Are there any risks/downsides to your recommendations?
4. To convince Brian about flaws (if any) in Breezy’s working capital management, a bottom-line impact needs to be demonstrated. Is it possible to attribute an approximate cost to the deficiency or excess as calculated in (1)? What is this approximate cost?

1. According to the formula of NWC we have it: | 2002 | 2003 | NWC | 390.000,00 | 755.000,00 | Current ratio | 3,79 | 4,28 |
As according to the balance sheet definition of working capital (current assets minus current liabilities), NWC is an indication of the firm’s current solvency in repaying its creditors. So in 2002 and 2003 the company had NWC of 390.000,00 and 755.000,000 respectively.
If we compare current ratios of the company with industry average numbers, we have quite good situation here. The industry average current ratio was 2.5 in 2002 and 2.7 in 2003, while the company’s rate was 3.79 and 4.28 respectively, which indicates that the company is competitive in this regard and was far ahead industry rates. But we know that the most of financial or cash resources of company come from LT or equity financing - it is mainly LT bank loans and funds coming from shareholders. It distorts the

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